FORMALISING SOCIAL SECURITY IN MALAWI

FORMALISING SOCIAL SECURITY. - I referred to this article in my blog posting of 01/09/07 titled
Lobby for Formalising Social Security in Malawi (click for access)

By Pasipau Wadonda-Chirwa, a law lecturer at Chancellor College
The below article appeared in the Law Society of Malawi Newsletter 'The Malawian Lawyer' The Official Newsletter of the Legal Profession in Malawi,
May/June 2006 Issue

Social security has received increasing attention by policy makers and researchers in recent years; this has been in the framework of a fundamental shift in development politics that puts social policy at the centre of development. The concept was introduced by the World Bank in 1999 and although not explicitly recognised under the Malawian legal system or social framework it has been described as a tool that is responsible for bringing and sustaining people out of poverty in the developed world.

Conceptualisation of social security has been influenced globally by the definition propounded by the International Labour Organisation (ILO) defining it as the protection which society provides for its members through a series of public measures to (a) off set the absence or substantial reduction of income from work resulting from various contingencies (notably sickness, maternity, employment injury, unemployment, invalidity, old age and death of the breadwinner) (b) to provide people with health care (c) to provide benefits for families with children. Using this definition in the strict sense, it can be said that Malawi does not have a
comprehensive social security system although it embodies elements of the same found intermittently in Acts of Parliament and secondary legislation.

This brief article builds on the premise that Malawi does not have a formalised system of social security in the formal employment arena and argues that having a comprehensive social security system is vital if protecting workers against shocks and risks is to be achieved in the formal employment system. Such an argument is shrouded in the realisation that this should only be a first step in developing a social security system that extends to the informal security system. Some of the shocks and risks that are encountered by those employed include long or short-term sickness, injury, death, old age and unemployment. An overview of laws relating to social security provisions illustrate it is mainly the Employment Act No. 6 of 2000 and the Workers Compensation Act No. 7 of 2000 that deal with this concept. The Employment Act provides for sick leave and pay during sickness, maternity leave every three years; women are entitled to eight weeks maternity on full pay and the provision of minimum wage. Further the Act provides for severance pay to those whose services are terminated by mutual agreement with the employer or unilaterally by the employer.

In contrast to this, the Workers Compensation Act provides for compensation of all injuries suffered or disease contracted by workers in the course of their employment or for death resulting from such injury or disease. In some way, the Wills and Inheritance Act (Cap. 10:02 of the Laws of Malawi) also embodies social security concepts by making provision for dependents that were not adequately provided for through inadvertent omission in a Will and also regulates distribution of property where a person dies intestate. Such provisions are insufficient. For example, one of the core areas of social security, namely, pension, is not clearly regulated under law. However, the Government has, what is termed Government Public Pension Scheme (GPPS), a noncontributory pay-as-you-go system that provides retirement and other benefits to civil servants. These provisions are discharged mainly through the Malawi Public Service Regulations (MPSR), which provides for sick leave, terminal benefits, emergency advance, death benefit, burial of an officer and dependents. The MPSR also provides for pensions, and employees can opt for a reduced lump sum or a small monthly pension. Malawi has no social security system for private-sector workers. Nevertheless, the Government encourages state-run and private-sector companies through favourable tax policy to provide voluntary occupational retirement plans. Most of these arrangements operate on a defined contribution basis through contracts with insurance companies. Comparatively, these private entities’ social security provisions are without a glaring difference from Government institutions aside from provision of medical scheme.

The current social security system is not adequate to cushion employees against shocks and risks as most of the legislation is fragmented with some vital areas such as pension and health care schemes not comprehensively provided for under the legal framework. What emerges is that the current system cushions the employer against shocks and risks encountered during the subsistence of employment to point of termination, with glaring gaps within, not providing for contingencies such as invalidity and old age. It becomes pertinent therefore to have an all-embracing Social Security Act where rights, duties and obligations are clearly defined. Such a social security regime should cater for contingencies like old age, invalidity, death, sickness and unemployment by the provisions of, inter alia basic pensions (i.e. retirement pension, survivor’s pension, invalidity pension, funeral grant) industrial injury scheme, social welfare and a national health insurance that is compelling with the HIV/AIDS pandemic. Further the current position, where an employer identifies an insurance agent to invest the money, is not viable economically. What is needed is an authority to oversee the management and control of the issue of pensions and other social benefit schemes in the country. Additional matters of Workers Compensation Fund and other related matters, it is proposed, should be handled by the authority for proper investment to sufficiently gain dividend and build the capital base.

The proposal for a formalised social security regime is vital as,to borrow the words of the former director of the ILO Wilfred Jenks, - “Nothing in the history of social security has transformed the lives of the common man more radically than the assurance that, in the event of loss of income through accident, poor health, unemployment, death of breadwinner, he will not be forced into destitution.”

Leyland DAF (Malawi) Ltd. V Joe Ndema M.S.C.A Civil
Appeal No. 10 of 2006.

The appellant is a company that runs a garage business and also sells motor vehicle spare parts. The respondent was at all material times an employee of the appellant. He was employed as an assistant mechanic from 1976 to 2003, when his services were terminated on redundancy. At the time of termination, the respondent’s salary was MK24,000. He was paid the sum of MK90,014.03 being full and final payment of severance allowance for the twenty-six years he had worked for the appellant. This sum represented four-weeks’ wages for each of the years he worked for the appellant. The respondent cried foul. He therefore brought an action in the Industrial Relations Court against the appellant arguing that he had been grossly underpaid. The Court held that the correct method of calculating severance allowance under the First Schedule of the Employment Act was to use a single multiplicand and multiplier formula based on the respondent’s last salary. The Court therefore awarded him MK624, 000.

The appellant being dissatisfied with the decision, appealed to the High Court. The High Court upheld the lower court’s formula in the computation of severance allowance under section 35 of the Employment Act and the amount awarded to the respondent. The appellant was further dissatisfied and appealed to the Malawi Supreme Court of Appeal. It argued that the words, “four weeks’ wages for each completed year of continuous service,” in the First Schedule, mean four weeks’ wages for each completed year of continuous service separately and that the respective amounts arrived at each year would then be added up covering the total number of years served to arrive at the total severance allowance due and payable. It
also argued that there would be no basis for calculating the severance allowance by applying the last salary earned by the respondent, as was done by the lower courts because there is no provision in the relevant legislation providing for the same.

On the contrary, the respondent’s position was that severance pay was not a new phenomenon in the employment laws of Malawi. Severance pay was provided for under subsidiary legislation made under the Regulation of Minimum Wages and Conditions of Employment Act, Cap 55:01; under the Wages (Hotel and Catering Industry) Order and the Wages and Conditions of Employment (Severance Pay) Order. In both these provisions, calculation of severance pay, due and payable to the employee, was based on the employee’s “earnings at the time of the termination of his services,” multiplied by the number of years served. He pointed out that although the Regulation of Minimum Wages and Conditions of Service Act was repealed, the two pieces of subsidiary legislation were saved by section 68(2) of the Employment Act 2000. He therefore submitted that the words, “four weeks wages for each completed year of continuous service,” envisage a severance allowance based on the employee’s last salary multiplied by the number of years worked.

The Court dismissing the appeal held:
1. That if the intention of the legislature was that an employee should be paid severance allowance based on the salary of each year, then it would have said so clearly by using such words as, “four weeks wages for each specific, or respective, or particular completed year of continuous service,”